Elbit Systems Ltd., which makes military command and control systems, has agreed in principle to merge with Elop Electro-Optics Industries Ltd. of Rehovot, another military equipment manufacturer. At competitor Controp Precision Technologies Ltd. in Hasharon, general manager Shlomo Nir speculated that the merger would allow the combined companies to offer integrated systems for a lower price. Haim Soffer, Elop's assistant to the president/CEO, said it was too early to say which systems would be integrated. Elbit's corporate secretary, Arie Tal, agreed, however, that there was a strategic reason for the merger. "We are seeking complementary technologies and market presence," he said. The merger solves two concerns for Elop, according to Soffer. By joining forces, marketing and financial resources will be strengthened, helping the company to compete with European and American giants. Also, the combined companies will be better positioned to make acquisitions if, as is expected, the Israeli government privatizes some of its defense holdings. Old partners Controp's Nir predicted that ongoing political changes in the region would sustain the demand for tactical systems, including those for night vision, thermal imaging and laser rangefinding. Since 1995, Elbit and Elop have been partners in a venture called Silver Arrow, in which they developed a range of unmanned surveillance aircraft. Under terms of the merger agreement, Elop owners will receive 32.5 percent of Elbit's ordinary shares. Elbit reported net income for last year of $27.83 million on net sales of $414.67 million, with a market capitalization of $438.38 million. A privately held company, Elop reported net sales of $300 million in 1998 but did not disclose net income. Tal said Elbit sells approximately 20 percent of its products to Israel, 47 percent to Europe and 26 percent to the US. Soffer said most of Elop's output goes to Israeli defense. The agreement allows either party to opt out after due diligence is completed. Otherwise, a definitive merger agreement will be signed, with completion scheduled for Dec. 31, 1999. Joseph Ackerman, the president and CEO of Elbit, will continue in that position after the merger.